- --------------------------------------------------------------------------------
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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 2001March 31, 2002
Commission File Number 1-8351
CHEMED CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 31-0791746
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2600 Chemed Center, 255 E. Fifth Street, Cincinnati, Ohio 45202
(Address of principal executive offices) (Zip code)
(513) 762-6900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ------- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Amount Date
Capital Stock 9,832,6879,790,902 Shares October 31, 2001April 30, 2002
$1 Par Value
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Page 1 of 1613
CHEMED CORPORATION AND
SUBSIDIARY COMPANIES
Index
Page No.
--------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheet -
September 30, 2001March 31, 2002 and
December 31, 20002001 3
Consolidated Statement of Income -
Three months ended
March 31, 2002 and nine months ended
September 30, 2001 and 2000 4
Consolidated Statement of Cash Flows Nine-
Three months ended
September 30,March 31, 2002 and 2001 and 2000 5
Notes to Unaudited Financial Statements 6 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10 - 1512
PART II. OTHER INFORMATION 1613
Page 2 of 1613
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED BALANCE SHEET
(in thousands except share and per share data)
September 30,March 31, December 31,
2002 2001
2000
------------- ---------------------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 20,14714,585 $ 10,2809,008
Accounts receivable, less allowances of $5,151
(2000$4,955
(2001 - $5,137) 51,292 54,571$4,941) 51,080 49,238
Inventories 11,231 10,50310,033 10,424
Statutory deposits 13,293 14,046
Other current assets 17,947 17,070
--------- ---------12,558 13,331
Prepaid expenses 16,766 18,052
---------- ----------
Total current assets 113,910 106,470105,022 100,053
Other investments 35,331 37,09937,737 38,492
Properties and equipment, at cost less accumulated
depreciation of $69,101 (2000$71,561 (2001 - $64,757) 69,459 75,177$69,738) 63,533 67,588
Identifiable intangible assets less accumulated
amortization of $8,335 (2000$8,214 (2001 - $7,749) 10,954 11,633$8,024) 3,893 4,037
Goodwill less accumulated amortization of $35,181
(2000$35,541
(2001 - $31,524) 165,684 169,083$35,541) 162,169 161,075
Other assets 24,062 21,913
--------- ---------27,354 25,266
---------- ----------
Total Assets $ 419,400399,708 $ 421,375
========= =========396,511
========== ==========
LIABILITIES
Current liabilities
Accounts payable $ 10,9047,390 $ 11,10211,651
Current portion of long-term debt 11,373 14,376366 353
Income taxes 10,571 11,8626,666 1,262
Deferred contract revenue 22,816 24,97321,770 22,194
Other current liabilities 46,248 44,629
--------- ---------44,293 49,650
---------- ----------
Total current liabilities 101,912 106,94280,485 85,110
Long-term debt 58,088 58,39165,891 61,037
Other liabilities 26,951 27,637
--------- ---------28,296 27,842
---------- ----------
Total Liabilities 186,951 192,970
--------- ---------174,672 173,989
---------- ----------
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES
OF THE CHEMED CAPITAL TRUST 14,520 14,641
--------- ---------14,195 14,239
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock-authorized 700,000 shares without par
value; none issued
Capital stock-authorized 15,000,000 shares $1 par;
issued 13,460,513 shares (2001 - 13,437,781 (2000 - 13,317,906) sharesshares) 13,461 13,438 13,318
Paid-in capital 166,436 162,618168,261 167,542
Retained earnings 156,690 153,909142,754 139,163
Treasury stock-3,605,904(2000stock - 3,467,753)3,676,785 shares
(2001 - 3,606,085 shares), at cost (110,386) (105,249)(112,815) (110,424)
Unearned compensation (12,264) (16,683)(6,428) (7,436)
Deferred compensation payable in company stock 3,270 5,5002,239 3,288
Accumulated other comprehensive income 2,227 3,2374,302 4,214
Notes receivable for shares sold (1,482) (2,886)
--------- ---------(933) (1,502)
---------- ----------
Total Stockholders' Equity 217,929 213,764
--------- ---------210,841 208,283
---------- ----------
Total Liabilities and Stockholders' Equity $ 419,400399,708 $ 421,375
========= =========396,511
========== ==========
See accompanying notes to unaudited financial statements.
Page 3 of 1613
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share data)
Three Months Ended
Nine Months Ended
September 30, September 30,
-------------------- --------------------March 31,
-----------------------
2002 2001
2000 2001 2000
-------- -------- ----------------- --------
Continuing Operations
Service revenues and sales $117,498 $121,652 $359,487 $363,995
-------- --------$117,035 $121,200
-------- --------
Cost of services provided and cost of goods sold 71,781 72,913 218,661 220,14471,078 73,447
Selling and marketing expenses 11,583 13,117 33,836 35,17112,037 10,900
General and administrative expenses 24,504 23,946 75,476 72,92624,223 25,324
Depreciation 4,031 3,728 12,058 11,254
Other charges 4,031 - 4,031 -
-------- --------3,994 4,012
-------- --------
Total costs and expenses 115,930 113,704 344,062 339,495
-------- --------111,332 113,683
-------- --------
Income from operations 1,568 7,948 15,425 24,5005,703 7,517
Interest expense (1,373) (1,664) (4,325) (5,233)(773) (1,486)
Distributions on preferred securities (275) (282) (830) (856)(270) (277)
Other income - net 165 1,916 2,769 7,104
-------- --------2,329 1,759
-------- --------
Income before income taxes 85 7,918 13,039 25,5156,989 7,513
Income taxes 7 (3,210) (5,003) (9,902)
-------- --------(2,317) (2,899)
-------- --------
Income from continuing operations 92 4,708 8,036 15,6134,672 4,614
Discontinued operations - (73) (1,973) 37
-------- --------(104)
-------- --------
Net Incomeincome $ 924,672 $ 4,635 $ 6,063 $ 15,650
======== ========4,510
======== ========
Earnings Per Common Share
Income from continuing operations $ .01.47 $ .48 $ .83 $ 1.58
======== ========.47
======== ========
Net income $ .01.47 $ .48.46
======== ========
Diluted Earnings Per Share
Income from continuing operations $ .62.47 $ 1.59.47
======== ========
Net income $ .47 $ .46
======== ========
Earnings Excluding Goodwill Amortization
Adjusted Income
Income from continuing operations $ 4,672 $ 5,773
======== ========
Net income $ 4,672 $ 5,669
======== ========
Adjusted Earnings Per Share
Income from continuing operations $ .47 $ .59
======== ========
Net income $ .47 $ .58
======== ========
Adjusted Diluted Earning Per Share
Income from continuing operations $ .47 $ .58
======== ========
Net income $ .47 $ .57
======== ========
Average number of shares outstanding
9,690 9,742 9,721 9,867
======== ========Earnings Per Share 9,843 9,746
======== ========
Diluted Earnings per Common Shares
Income from continuing operations $ .01 $ .48 $ .82 $ 1.57
======== ======== ======== ========
Net income $ .01 $ .47 $ .62 $ 1.57
======== ======== ======== ========
Average number of shares
outstanding 9,798 10,253 9,850 10,319
======== ========Per Share 10,267 10,303
======== ========
Cash Dividends Paid Per Share $ .11 .10 .33 .30
======== ========$ .11
======== ========
See accompanying notes to unaudited financial statements.
Page 4 of 1613
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
NineThree Months Ended September 30,
----------------------
2001 2000*
--------- --------March 31,
----------------------------
2002 2001*
---------- ----------
Cash Flows From Operating Activities
Net income $ 6,0634,672 $ 15,6504,510
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 18,162 17,394
Discontinued operations 1,973 (37)4,242 6,074
Gains on sale of investments (1,141) (1,112)
Provision for uncollectible accounts receivable 1,921 1,137
Gains on sale of investments (993) (2,662)805 673
Provision for deferred income taxes (11) 1,22549 241
Discontinued operations - 104
Changes in operating assets and liabilities,
excluding amounts acquired in business
combinations
(Increase)/decreaseDecrease/(increase) in accounts receivable (129) 361
Increase(2,587) 990
Decrease/(increase) in inventories (728) (994)
(Increase)/decrease391 (496)
Decrease/(increase) in prepaid expenses 1,276 (622)
Decrease in statutory deposits 753 (361)
Increase in other current assets (1,048) (3,794)
Increase/(decrease)773 169
Decrease in accounts payable, deferred
contract revenue and other current
liabilities 1,020 (327)(9,424) (4,139)
Increase in income taxes 179 3,5375,711 2,206
Other - net 1,390 914
-------- --------1,109 1,258
--------- ----------
Net cash provided by continuing operations 28,552 32,0435,876 9,856
Net cash usedprovided by discontinued operations (55) (144)
-------- --------- 113
--------- ----------
Net cash provided by operating activities 28,497 31,899
-------- --------5,876 9,969
--------- ----------
Cash Flows From Investing Activities
Capital expenditures (11,272) (13,128)(2,670) (3,225)
Proceeds from sale of property and equipment 3,520 310investments 1,917 1,310
Business combinations--net of cash acquired (1,229) -
Net outflows from discontinued operations (3,190) (2,804)
Business combinations--net of cash acquired (2,020) (12,495)
Proceeds from sale of investments 1,377 3,424
Other-net 66 (457)
--------(816) (1,346)
Other - net 1,368 (296)
--------- ----------
Net cash used by investing activities (11,519) (25,150)
-------- --------(1,430) (3,557)
--------- ----------
Cash Flows From Financing Activities
Repayment of long-term debt (3,306) (7,090)
Dividends paid (3,292) (3,022)(1,083) (1,101)
Purchase of treasury stock (1,201) (5,395)(3,141) (1,056)
Proceeds from issuances of long-term debt 5,000 -
Other - net 688 (371)
-------- --------355 329
--------- ----------
Net cash usedprovided/(used) by financing activities (7,111) (15,878)
-------- --------
Increase/(Decrease) In1,131 (1,828)
--------- ----------
Increase in Cash Andand Cash Equivalents 9,867 (9,129)5,577 4,584
Cash and cash equivalentsCash Equivalents at beginningBeginning of periodPeriod 9,008 10,280
17,282
-------- ----------------- ----------
Cash and cash equivalentsCash Equivalents at endEnd of periodPeriod $ 20,14714,585 $ 8,153
======== ========14,864
========= ==========
*Reclassified to conform to 20012002 presentation.
See accompanying notes to unaudited financial statements.
Page 5 of 1613
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
Notes to Unaudited Financial Statements
1. The accompanying unaudited consolidated financial statements have
been prepared in accordance with Rule 10-01 of SEC Regulation S-X.
Consequently, they do not include all the disclosures required
under generally accepted accounting principles for complete
financial statements. However, in the opinion of the management
of Chemed Corporation (the "Company"), the financial statements
presented herein contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the
financial position, results of operations and cash flows of the
Company and its consolidated subsidiaries ("Chemed"). For further
information regarding Chemed's accounting policies, refer to the
consolidated financial statements and notes included in Chemed's
Annual Report on Form 10-K for the year ended December 31, 2000.2001.
2. Sales and service revenues and aftertax earnings by business
segment follow below (in thousands):
Three Months Ended
Nine Months Ended
September 30, September 30,
------------------ -----------------March 31,
--------------------
2002 2001
2000 2001 2000
-------- -------- -------- ----------------- ---------
Sales and Service
Revenues
and Sales
-------------------------------------------
Roto-Rooter $ 65,40665,279 $ 68,678 $200,960 $206,20868,456
Patient Care 34,894 34,498 105,674 101,09636,182 34,941
Service America 17,198 18,476 52,853 56,691
-------- --------15,574 17,803
-------- --------
Total $117,498 $121,652 $359,487 $363,995
======== ========$117,035 $121,200
======== ========
Aftertax Earnings
-----------------
Roto-Rooter $ 1,268(a) 5,0843,479 $ 8,930(a) 14,6734,081
Patient Care 604 487 1,899 1,439867 580
Service America (310)(b) 186 635(b) 1,027327 462
-------- ------ -------- -------
Total segment earnings 1,562 5,757 11,464 17,1394,673 5,123
Corporate
Overhead (1,387) (1,154) (4,018) (3,726)
Net investing and
financing income/(loss) (83) 105 (113) 401
Gains on sales of investments - -775 703
1,799Overhead (972) (1,213)
Net investing and financing
income 196 1
Discontinued operations - (73) (1,973) 37
-------- --------(104)
-------- --------
Net income $ 924,672 $ 4,6354,510
======== ========
Adjusted Aftertax
Segment Earnings(a)
---------------------
Roto-Rooter $ 6,0633,479 $ 15,650
======== ========4,853
Patient Care 867 763
Service America 327 666
-------- --------
Total segment earnings $ 4,673 $ 6,282
======== ========
(a) Amounts include Roto-Rooter's aftertax costAdjusted to exclude amortization of its overtime wage settlement withgoodwill in 2001.
Page 6 of 13
The balances of goodwill, less accumulated amortization at March
31, 2002 for the Department of Labor ($1,800,000).
(b) Amounts includeRoto-Rooter, Patient Care and Service America's aftertax impairment loss related to the closing
of its Tucson branch ($620,000).America
segments were $101,117,000, $30,673,000 and $30,379,000,
respectively.
3. Earnings per common share are computed using the weighted average
number of shares of capital stock outstanding. Diluted earnings
per common share are computed as follows (in thousands except per
share data):
Page 6 of 16
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2001 2000 2001 2000
------- ------- ------- -------Income Shares Income
(Numerator) (Denominator) Per Share
----------- ------------- ---------
Income from Continuing Operations -
---------------------------------
Reported incomeFor the Three Months Ended March 31,
- ---------------------------------------
2002
Earnings $ 924,672 9,843 $ 4,708 $ 8,036 $15,613
Aftertax interest on Trust
Securities -(a) 196 -(a) 575
------- ------- ------- -------
Adjusted income $ 92 $ 4,904 $ 8,036 $16,188.47
=======
======= ======= =======
Average numberConversion of shares outstanding 9,690 9,742 9,721 9,867
Effect of conversion of the
Trust Securities -(a) 413 -(a) 370
Effect of nonvested stock awards 108 97 112 81
Effect of unexercisedtrust securities 176 384
Dilutive stock options - 1 17 1
------- ------- ------- -------
Average number of shares used to
compute diluted earnings per
common share 9,798 10,253 9,850 10,319
======= ======= ======= =======40
---------- -----------
Diluted earnings per common share $ .014,848 10,267 $ .48.47
========== =========== =======
2001
Earnings $ .824,614 9,746 $ 1.57.47
=======
======= =======Conversion of trust securities 180 396
Nonvested Stock Awards - 120
Dilutive stock options - 41
---------- -----------
Diluted earnings $ 4,794 10,303 $ .47
========== =========== =======
Net Income -
----------
Reported incomeFor the Three Months Ended March 31,
- ---------------------------------------
2002
Earnings $ 924,672 9,843 $ 4,635 $ 6,063 $15,650
Aftertax interest on Trust
Securities -(a) 196 -(a) 575
------- ------- ------- -------
Adjusted income $ 92 $ 4,831 $ 6,063 $16,225.47
=======
======= ======= =======
Average numberConversion of shares outstanding 9,690 9,742 9,721 9,867
Effect of conversion of the
Trust Securities -(a) 413 -(a) 370
Effect of nonvested stock awards 108 97 112 81
Effect of unexercisedtrust securities 176 384
Dilutive stock options - 1 17 1
------- ------- ------- -------
Average number of shares used to
compute diluted earnings per
common share 9,798 10,253 9,850 10,319
======= ======= ======= =======40
---------- -----------
Diluted earnings per common share $ .014,848 10,267 $ .47
========== =========== =======
2001
Earnings $ .624,510 9,746 $ 1.57.46
=======
Conversion of trust securities 180 396
Nonvested sock awards - 120
Dilutive stock options - 41
---------- -----------
Diluted earnings $ 4,690 10,303 $ .46
========== =========== =======
Adjusted Earnings (a) -
For the Three Months Ended March 31, 2001
- --------------------------------------------
Adjusted Income from Continuing Operations
Earnings $ 5,773 9,746 $ .59
=======
Conversion of trust securities 180 396
Nonvested sock awards - 120
Dilutive stock options - 41
---------- -----------
Diluted earnings $ 5,953 10,303 $ .58
========== =========== =======
Adjusted Net Income
Earnings $ 5,669 9,746 $ .58
=======
Conversion of trust securities 180 396
Nonvested Stock Awards - 120
Dilutive stock options - 41
---------- -----------
Diluted earnings $ 5,849 10,303 $ .57
========== =========== =======
(a) The impactAdjusted to exclude amortization of the Trust Securities on earnings per share from continuing
operations is anti-dilutive for the three and nine-month periods ended September 30,goodwill in 2001. Therefore, the Trust Securities are excluded from diluted earnings per share
computations.
4. The Company had total comprehensive income of $167,000,
$6,048,000, $5,053,000$4,760,000 and
$15,048,000$3,534,000 for the three-three months ended March 31, 2002 and nine-month periods ended September 30, 2001, and 2000,
respectively. The otherdifference between the Company's net income and
comprehensive income relates to the cumulative unrealized
appreciation/depreciation on its available-for-sale securities.
Page 7 of 13
5. During the first quarter of 2001, the U.S. Department of
Labor ("DOL") initiated a nationwide investigation into the
pay practices for commissioned service technicians employed2002, one purchase business
combination was completed within the Roto-Rooter segment.segment for a
purchase price of $1,229,000 in cash. The issue in questionpurchase price was
whether commissioned service technicians are entitledallocated as follows: $1,104,000 to overtime pay for time worked in excessgoodwill, $50,000 to
identifiable intangible assets and $75,000 to other assets. The
business acquired provides drain cleaning and plumbing services
under the Roto-Rooter name. The results of 40 hours. During
the third quarter of 2001, Roto-Rooter reached resolution
with the DOL and agreed to make overtime payments to
specified employees and former employees. The costoperations of this
Page 7 of 16
settlement, including payroll taxes and estimated legal
costs, is $3,000,000 and is includedbusiness in "other charges"2002 are not material.
6. Accruals relating to restructuring charges recorded in the statement of income in the third quarter.
Roto-Rooter completed a conversion of its pay plan for these
employees earlier this year. Accordingly, management does
not anticipate that this issue will have any significant
impact on operating earnings on a going-forward basis.
6.2001
totaled approximately $2.4 million at March 31, 2002 compared with
$3.5 million at December 31, 2001.
7. Effective for the second quarter ofJuly 1, 2001, Chemed decided to
discontinue its Cadre Computer segment. Inadopted the third
quarter, Chemed completed the saleprovisions of the business and assets
of Cadre Computer to a company owned by the former Cadre
Computer employees for a note receivable which has been fully
reserved.
Data relating to discontinued operations include the
following (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2001 2000 2001 2000
------- -------- ------- --------
Cadre Computer income/(loss) before
income taxes $ (165) $ (111) $ (734) $ 60
Income tax benefit/(expense) 58 38 255 (23)
Minority interest 6 - 46 -
------ ------ ------- -------
Cadre Computer net income/(loss) (101) (73) (433) 37
Adjustment to loss/(loss) on disposal,
net of income tax expense/(benefit)
of $54 and $(829) 101 - (1,540) -
------ ------ ------- -------
Income/(loss) from discontinued operations $ - $ (73) $(1,973) $ 37
====== ====== ======= =======
Net service revenues and sales of Cadre
Computer $1,557 $2,129 $ 5,088 $ 6,538
====== ====== ======= =======
7. During the third quarter of 2001, Service America recorded an
impairment loss of $1,031,000 on the valuation of the assets
of its Tucson branch which it closed in October 2001. The
loss related primarily to goodwill and other intangibles
($815,000), property and equipment ($145,000) and various
other assets ($71,000). The impairment loss is included in
"other charges" on the income statement.
The Tucson Branch recorded pretax losses of $124,000, nil,
$216,000 and $373,000 for the three- and nine-month periods
ended September 30, 2001 and 2000, respectively. It is
anticipated that the branch will incur approximately $235,000
of additional costs (primarily severance pay) and losses
during the remainder of 2001.
Page 8 of 16
8. Statement
of Financial Accounting Standards ("SFAS") No. 133
("SFAS133") Accounting141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets for Derivative Instrumentsall business combinations initiated after June 30,
2001. Effective January 1, 2002, Chemed adopted the provisions of
SFAS No. 141 and Hedging
Activities, is effectiveSFAS No. 142 for calendar yearall purchase business
combinations initiated prior to July 1, 2001. Since the
Company does not invest in derivative or hedging instruments,The adoption of SFAS133 has nothe
provisions of SFAS No. 141 did not materially impact on the Company's
financial statements.
The adoption of SFAS No. 142 eliminates the amortization of
goodwill as of the effective date of adoption. Amortization of
goodwill for the first quarter of 2001 is $1,255,000 ($1,159,000
net of income tax benefit), and was included in cost of services
and cost of goods sold in the consolidated statement of income.
In addition, SFAS No. 142 stipulates that goodwill must be
evaluated annually for impairment beginning in 2002 for each
component of its operating segments. The first, or transition,
evaluation must be done as of January 1, 2002 and must be
completed by June 30, 2002. For the purpose of impairment
testing, the Company has determined its reporting components are
Service America, Patient Care, Roto-Rooter Services (plumbing and
drain cleaning services), Roto-Rooter Franchising and Products
(manufacturing, sale and franchising of Roto-Rooter products and
services) and Roto-Rooter HVAC/non-Roto-Rooter brands (heating,
ventilating and air-conditioning repair services and non-Roto-
Rooter-branded drain cleaning and plumbing services). The
Company's preliminary impairment tests indicate that none of the
goodwill for any of its reporting components is impaired. The
impairment evaluations will be completed during the second quarter
of 2002.
8. On January 1, 2002, Chemed adopted the provisions of SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.
The adoption of SFAS No. 144 did not materially impact the
Company's financial statements.
9. In August 2001, the Financial Accounting Standards Board approved
the issuance of SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement becomes effective for fiscal years
beginning after June 15, 2002, and requires recognizing legal
Page 8 of 13
obligations associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development
or normal operation of a long-lived asset.
Since the Company has no material asset retirement obligations,
the adoption of SFAS No. 143 in 2003 will not have a material
impact on Chemed's financial statements.
10. On May 8, 2002, Chemed announced it entered into an agreement to
sell its wholly owned Patient Care subsidiary to an investor group
led by Schroder Ventures Life Sciences Group. Chemed expects to
receive cash payments of approximately $70 million and to
recognize an aftertax loss of approximately $1 to $2 million on
the sale.
Completion of the sale is contingent upon regulatory approvals,
approval by the Chemed Board of Directors and the purchaser's
receipt of financing commitments by June 30, 2002. The sale is
expected to close before the end of 2002.
Patient Care's reported net income was as follows (in thousands):
For the three months ended March 31, 2002 $ 867
For the three months ended March 31, 2001 580
For the year ended December 31, 2001 526
On an adjusted basis, excluding goodwill amortization for 2001 and
excluding restructuring and similar expenses and other
nonrecurring charges in the fourth quarter of 2001, Patient Care's
net income was as follows (in thousands):
For the three months ended March 31, 2002 $ 867
For the three months ended March 31, 2001 763
For the year ended December 31, 2001 3,325
Page 9 of 1613
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Financial Condition
- -------------------
There were no significant changesThe decline in the Company's balance
sheetother current liabilities from $49.7 million at
December 31, 20002001 to September 30, 2001.
Vitas Healthcare Corporation ("Vitas"), the privately-held
provider of hospice services$44.3 million at March 31, 2002 is due largely to
the terminally illpayment of liabilities for 2001 supplemental thrift and profit-
sharing contributions and incentive compensation. The decline in
which the
Company carries an investment of $27accounts payable from $11.7 million of redeemable preferred
stock, refinanced its debt obligations in April 2001. In connection
therewith, the Company and Vitas agreedat December 31, 2001 to extend the maturity of
Vitas' redeemable preferred stock to April 1, 2007. In addition,
Vitas issued a warrant$7.4
million at March 31, 2002 is primarily due to the Companytiming of cash
payments at the end of the periods. Income taxes increased from $1.3
million at December 31, 2001 to $6.7 million at March 31, 2002
primarily due to the refund of overpaid estimated federal taxes for
the purchase of
approximately 1.6 million shares of its common stock.
Vitas' operating results and net income continue to meet
its management's expectations. On the basis of current information,
management believes the Company's investment2001 in Vitas is fully
recoverable and that no impairment exists.
On June 20, 2001, Chemed's $85 million revolving line of
credit with Bank of America expired. It is anticipated that another
line of credit will be established during the next several months.March 2002.
At March 31, 2002, Chemed had approximately $18.5 million of
unused lines of credit with various banks at September 30, 2001.banks. Management believes its
liquidity and sources of capital are satisfactory for the Company's
needs in the foreseeable future.
Results of Operations
- ---------------------
Data relating to (a) the increase or decrease in service revenues
and sales from continuing operations and (b) aftertax earnings as a percent of service revenues
and sales for each segment are set forth below:
Service Revenues Aftertax Earnings/(Loss)
and Sales -Earnings as a % of Revenues
and Sales - % (Aftertax Margin)
------------------------------------
Three Months Increase/(Decrease) (Aftertax Margin)
--------------------- -----------------------
2001 2001
------------------
Ended March 31 2002 vs. 2000 2001 2000
---------------------2002 Reported Adjusted (a)
- -------------- ---------------- ------- --------- ---------
Three Months Ended
September 30,
- -------------------------------
Roto-Rooter (5)% 1.9% 7.4%
Patient Care 1 1.7 1.4
Service America (7) (1.8) 1.0
Total (3) 1.3 4.7
Page 10 of 16
Nine Months Ended
September 30,
- ------------------
Roto-Rooter (3)% 4.4%5.3% 6.0% 7.1%
Patient Care 5 1.8 1.44 2.4 1.7 2.2
Service America (7) 1.2 1.8(13) 2.1 2.6 3.7
Total (1) 3.2 4.7
Third Quarter 2001 versus Third Quarter 2000
- --------------------------------------------(3) 4.0 4.2 5.2
(a) Adjusted to exclude amortization of goodwill in 2001.
Service revenues and sales for the Roto-Rooter segment for the
first quarter of 2002 totaled $65,279,000, a decline of 5% versus
$68,456,000 recorded in the first quarter of 2001. Revenues of the
plumbing services business and the drain cleaning business declined 6%
and 2%, respectively, for the first quarter of 2002, as compared with
revenues for the first quarter of 2001. These revenues accounted for
40% and 45%, respectively, of Roto-Rooter's total service revenues and
sales during the 2002 period. Excluding revenues of the HVAC and non-
Roto-Rooter branded operations, some of which have been divested,
revenues of this segment for the first quarter of 2002 declined 2%
versus revenues for the first quarter of 2001. The aftertax margin of
the Roto-Rooter segment for the thirdfirst quarter of 2001 totaled $65,406,000, a decline of 5%2002 was 5.3% versus
7.1% on an adjusted basis (excluding goodwill amortization) during the
$68,678,000 recorded in the thirdfirst quarter of 2000.
Revenues of the drain cleaning business increased slightly and
revenues of the plumbing services business declined 7% for the third
quarter of 2001, as compared with revenues for 2000. Each of these
businesses' revenues accounts for approximately 42% of Roto-Rooter's
total revenues and sales. The overall revenue2001. This decline can be
partially ascribed to the economic slowdown as Roto-Rooter is experiencing lower demand for elective, non-emergency plumbing and
drain cleaning services. The aftertax margin during the third
quarter of 2001 was 1.9% versus 7.4% in the 2000 quarter. Excluding
the nonrecurring charge for the overtime wage settlement ($1,800,000
aftertax) the margin for the 2001 third quarter was 4.7%. The
decline versus 2000 isprimarily attributable to a
lowerdecline in the gross profit margin largely due toas the result of higher liability insurancelabor
costs, during 2001.as a percent of revenues, in the 2002 quarter.
Page 10 of 13
Service revenues of the Patient Care segment increased 1%4% from
$34,498,000$34,941,000 in the thirdfirst quarter of 20002001 to $34,894,000$36,182,000 in the thirdfirst
quarter of 2001.2002. The aftertax margin of this segment increased from 1.4%for the first
quarter of 2002 was 2.4% as compared with 2.2% on an adjusted basis
(excluding goodwill amortization) in the thirdfirst quarter of 2000 to 1.7% in 2001,
largely as the result of a higher gross profit margin in 2001.2002.
Service revenues and sales of the Service America segment
declined 7%13% from $18,476,000$17,803,000 in the thirdfirst quarter of 20002001 to
$17,198,000$15,574,000 in the thirdfirst quarter of 2001.2002. This decline is
attributable to a decline in contract renewals in 2002, lower retail
sales and the result of insufficient new service contracts to offset the loss of
expiring annual service contracts. The aftertax margin of this
segment was a negative 1.8% during the third quarter of 2001 versus
1.0% in 2000. Excluding the impairment loss on the assetsdivestment of the Tucson branch ($620,000 aftertax), the margin for 2001 was 1.8%.
The higher aftertax margin during 2001 is attributable to a higher
gross profit margin in 2001, partially offset by higher selling and
administrative expenses, as a percent of revenues.
Income from operations declined from $7,948,000 in the thirdfourth quarter of 2000 to $1,568,000 in the third quarter of 2001.
Excluding Roto-Rooter's overtime wage settlement ($3,000,000) and
Service America's impairment loss ($1,031,000), income from
operations for the third quarter of 2001 was $5,599,000, a decline
Page 11 of 16
of 30% from 2000. Similarly, earnings before interest, taxes,
depreciation and amortization before capital gains and nonrecurring
charges ("EBITDA") declined 26% from $15,141,000 in the third
quarter of 2000 to $11,285,000 in 2001. Both declines are primarily
due to lower operating profit of the Roto-Rooter segment.
Interest expense declined from $1,664,000 in the third
quarter of 2000 to $1,373,000 in the third quarter of 2001, largely
as a result of lower debt levels in the year 2001.
Other income-net declined from $1,916,000 in the third
quarter of 2000 to $165,000 in the third quarter of 2001 due
primarily to incurring losses on trust assets used to fund deferred
compensation liabilities in 2001 versus gains on such assets in
2000. These gains or losses included in other income are entirely
offset by increases or reductions in operating expenses.
Income from continuing operations declined from $4,708,000
($.48 per share) in the third quarter of 2000 to $92,000 ($.01 per
share) in the third quarter of 2001. Excluding the overtime wage
settlement and the impairment loss ($2,420,000 aftertax), income
from continuing operations in 2001 was $2,512,000 ($.26 per share).
The decline versus the prior year period is primarily due to lower
aftertax earnings of the Roto-Rooter segment.
Net income for the third quarter of 2000 includes a
$73,000 loss recorded by the Cadre Computer segment which was
discontinued in 2001.
Nine Months Ended September 30, 2001 versus September 30, 2000
- --------------------------------------------------------------
Service revenues and sales of the Roto-Rooter segment for
the first nine months of 2001 totaled $200,960,000, a decline of 3%
versus the $206,208,000 recorded in the first nine months of 2000.
Revenues of the drain cleaning business increased 1% and revenues of
the plumbing services business declined 3% for the first nine months
of 2001, as compared with revenues for 2000. The overall revenue
decline in 2001 is largely attributable to the economic slowdown as
Roto-Rooter is experiencing lower demand for elective, non-emergency
plumbing and drain cleaning services. The aftertax margin during
the first nine months of 2001 was 4.4% versus 7.1% in the 2000
period. Excluding the nonrecurring charge for the overtime wage
settlement the margin for the 2001 quarter was 5.3%. The decline
versus 2000 is attributable to a lower gross profit margin, largely
due to higher liability insurance costs during 2001.
Service revenues of the Patient Care segment increased 5%
from $101,096,000 in the first nine months of 2000 to $105,674,000
in the first nine months of
2001. The aftertax margin of this Page 12 of 16
segment increaseddeclined from 1.4%3.7% on an
adjusted basis (excluding goodwill amortization) in 2001 to 2.1% in
the first nine monthsquarter of 2000 to 1.8%
in 2001, largely as the result of a higher gross profit2002. This margin in
2001.
Service revenues and sales of the Service America segment
declined 7% from $56,691,000 in the first nine months of 2000 to
$52,853,000 in the first nine months of 2001. This decline is largelyprimarily due to
the resultnegative impact of insufficient new service contracts to offsetoperating leverage during a period when
revenues declined and operating expenses were essentially level with
the expiration of existing service contracts. The aftertax margin
of this segment was 1.2% during the first nine months of 2001 versus
1.8% in 2000. Excluding the impairment loss on the assets of the
Tucson branch ($620,000 aftertax), the margin for 2001 was 2.4%.
The higher aftertax margin during 2001 is attributable to a higher
gross profit margin in 2001, partially offset by higher selling and
administrative expenses, as a percent of revenues.prior year.
Income from operations declined from $24,500,000 in the
first nine months of 2000 to $15,425,000 in the first nine months of
2001. Excluding Roto-Rooter's overtime wage settlement ($3,000,000)
and Service America's impairment loss ($1,031,000), income from operations for the first nine monthsquarter of 2002 was
$5,703,000 versus the $7,517,000 recorded in the comparable period of
2001. On an adjusted basis, excluding goodwill amortization in 2001
($1,255,000), income from operations was $19,456,000, a
decline of 21% from 2000. Similarly, earnings before interest,
taxes, depreciation and amortization before capital gains and
nonrecurring charges ("EBITDA") declined 16% from $44,820,000$8,772,000 in the first
nine monthsquarter of 20002001. The $3,069,000 decline in adjusted income from
operations from the first quarter of 2001 to $37,800,000the first quarter of 2002
is primarily attributable to the decline in 2001. Both declines are
primarily due to lowerRoto-Rooter's operating
profit of the Roto-Rooter segment.profit.
Interest expense declined from $5,233,000 in$1,486,000 during the first
nine monthsquarter of 20002001 to $4,325,000 in$773,000 during the first nine monthsquarter of 2001,
largely2002, as a
result of refinancing long-term debt at lower debt levelsinterest rates in
the yearDecember 2001.
Other income-net declinedincreased from $7,104,000$1,759,000 during the first
quarter of 2001 to $2,329,000 during the first quarter of 2002,
primarily as a result of net realized and unrealized gains on assets
held in non-qualified benefit plan trusts in the first nine monthsquarter of 2000 to $2,769,0002002
versus net losses recorded in the first nine monthsquarter of 2001.
The Company's effective income tax rate during the first quarter
of 2002 was 33.2% versus 38.6% during the first quarter of 2001.
Excluding the effect of goodwill amortization in the 2001 quarter, the
effective tax rate was 34.2%.
Income from continuing operations for the first quarter of 2002
was $4,672,000 ($.47 per share) as compared with $4,614,000 ($.47 per
share) for the first quarter of 2001. Net income for the first
quarter of 2002 was $4,672,000 ($.47 per share) as compared with
$4,510,000 ($.46 per share) for the first quarter of 2001. Net income
for the first quarter of 2001 due primarily to largerincluded a loss of $104,000 ($.01 per
share) from operations discontinued in the second quarter of 2001.
Income from continuing operations and net income for the first quarter
of 2001 included aftertax goodwill expense of $1,159,000 ($.12 per
share and $.11 per diluted share) versus no goodwill amortization in
Page 11 of 13
2002. In addition, income from continuing operations and net income
included aftertax capital gains on the sales of investments in
2000of
$775,000 ($2,662,000) versus 2001.07 per share) and $703,000 ($993,000) and to incurring losses on
trust assets used to fund deferred compensation liabilities in 2001
versus gains on such assets in 2000. These market gains or losses
on trust assets included in other income are entirely offset by
increases or reductions in operating expenses.
Income from continuing operations declined from
$15,613,000 ($1.58.07 per share and $1.57 per diluted share)in the first
nine monthsquarter of 2000 to $8,036,000 ($.83 per share2002 and $.82 per
diluted share)2001, respectively.
On an adjusted basis, excluding goodwill amortization in the first nine months of 2001. Excluding capital
gains on the sales of investments, and overtime wage settlement and
the impairment loss (which total $2,420,000 aftertax),2001,
income from continuing operations in 2001for the first quarter of 2002 was
$9,753,000$4,672,000 ($1.00.47 per diluted share) as compared with $5,773,000 ($.59
per share and $.99$.58 per diluted share) versus $13,814,000 ($1.40 per share and
$1.39 per diluted share). The decline versusfor the prior year period
is primarily due to lower aftertax earningsfirst quarter of the Roto-Rooter
segment.
Page 13 of 16
Net2001.
Similarly, adjusted net income for the first nine months includesquarter of 2002 was
$4,672,000 ($.47 per share) as compared with $5,669,000 ($.58 per
share and $.57 per diluted share) for the results
of the Cadre Computer segment which was discontinued in the secondfirst quarter of 2001.
Included in the 2001 loss from discontinued
operations is a loss on the disposal of Cadre Computer amounting to
$1,540,000.
Accounting for Business Combinations and Intangible AssetsAsset Retirement Obligations
- ----------------------------------------------------------
During June-------------------------------------------
In August 2001, the Financial Accounting Standards Board approved
the issuance of Statement of Financial Accounting StandardsSFAS No. 141 ("SFAS141"), Business Combinations, and Statement of
Financial Accounting Standards No. 142 ("SFAS142"), Goodwill and
Other Intangible Assets. For Chemed these statements will generally
become effective January 1, 2002, although business combinations
initiated after July 1, 2001 are subject to the non-amortization and
purchase accounting provisions.
Specifically, SFAS142 stipulates that goodwill is no
longer subject to amortization, but must be evaluated annually for
impairment beginning January 1, 2002. Chemed estimates that the
non-amortization provision will increase its diluted earnings per
share by approximately $.40 to $.45 per share in the year 2002. The
assessment of goodwill for impairment is a complex issue in which a
company must determine, among other things, the fair value of each
defined component of its operating segments. It is, therefore, not
possible at this time to predict the impact, if any, which the
impairment assessment provisions of SFAS142 will have on Chemed's
financial statements.
Accounting for Asset Retirement Obligations
- -------------------------------------------
During June 2001, the Financial Accounting Standards Board
approved the issuance of Statement of Financial Accounting Standards
No. 143, ("SFAS143"), Accounting for Asset Retirement
Obligations. This statement becomes effective for fiscal years
beginning after June 15, 2002, and requires all entities to recognize
legal obligations associated with the retirement of tangible long-livedlong-
lived assets that result from the acquisition, construction or
development and/or normal operation of a long-lived asset.
Since the Company has no material asset retirement obligations,
the adoption of SFAS No. 143 in 2003 will not have a material impact
on itsChemed's financial statements.
Page 14Subsequent Event
- ----------------
The completion of 16
Accounting for the Impairment or Disposalpending sale of Long-Lived Assets
- --------------------------------------------------------------
During August 2001, the Financial Accounting Standards
Board approved the issuanceCompany's Patient Care
subsidiary is expected to generate net cash proceeds of Statement of Financial Accounting
Standards No. 144 ("SFAS144"), Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement becomes effective for
fiscal years beginning after December 15, 2001 and modifies
accounting for impairment of long-lived assets to be held and used,
disposed of by sale or otherwise disposed.approximately
$68 million. It is currently
anticipated that adoption of SFAS144 in 2002such proceeds will not materially
impact the Company's financial statements.be used for
acquisitions, debt repayment and other corporate purposes.
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995 Regarding Forward-LookingForward-looking Information
- -------------------------------------------------------------
This report contains statements which are subject to certain
known and unknown risks, uncertainties, contingencies and other
factors that could cause actual results to differ materially from
such statements.these statements and trends. The Company's ability to deal with the
unknown outcomes of these events, many of which are beyond its
control, may affect the reliability of its projections and other
financial matters.
Page 1512 of 1613
PART II -- OTHER INFORMATION
-
----------------------------
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
--------
Exhibit SK 601 Page
No. Ref. No. Description No.
------- -------- ----------- ------
None required.Required
(b) Reports on Form 8-K
-------------------
None were filed in the quarter ended September 30, 2001.March 31, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
Chemed Corporation
-----------------------------------------------
(Registrant)
Dated: NovemberMay 14, 20012002 By Naomi C. Dallob
----------------- ------------------------------------------- ------------------------
Naomi C. Dallob, Vice
President and Secretary
Dated: NovemberMay 14, 20012002 By Arthur V. Tucker, Jr.
----------------- ------------------------------------------- ------------------------
Arthur V. Tucker, Jr.
Vice President and
Controller (Principal
Accounting Officer)
Page 1613 of 1613